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2 Disclaimer/Publication and Purchasing Information The information and data presented in the 2014 Valuation Handbook Industry Cost of Capital and its June, September, and December quarterly updates has been obtained with the greatest of care from sources believed to be reliable, but is not guaranteed to be complete, accurate or timely. Duff & Phelps, LLC expressly disclaims any liability, including incidental or consequential damages, arising from the use of the 2014 Valuation Handbook Industry Cost of Capital and its June, September, and December quarterly updates. Copyright 2014 Duff & Phelps, LLC. All Rights Reserved. No part of this publication may be reproduced or used in any other form or by any other means graphic, electronic, or mechanical, including photocopying, recording, taping, or information storage and retrieval systems without Duff & Phelps prior, written permission. To obtain permission, please write to: Valuation Handbook Industry Cost of Capital, Duff & Phelps, 311 S. Wacker Dr., Suite 4200, Chicago, IL Your request should specify the data or other information you wish to use and the manner in which you wish to use it. In addition, you will need to include copies of any charts, tables, and/or figures that you have created based on that information. There is a $1,500 processing fee per request. There may be additional fees depending on your proposed usage. The foregoing does not preclude end-users from using the Valuation Handbook Industry Cost of Capital and its June, September, and December quarterly updates and data published herein in connection with their internal business operations. Published by: Duff & Phelps, LLC 311 South Wacker Drive Suite 4200 Chicago, IL (312) About Duff & Phelps Duff & Phelps is a premier global valuation and corporate finance advisor with expertise in complex valuation, dispute consulting, M&A and restructuring. The firm s more than 1,000 employees serve a diverse range of clients from offices in North America, Europe and Asia. For more information, visit M&A advisory, capital raising and restructuring services in the United States are provided by Duff & Phelps Securities, LLC. Member FINRA/SIPC. Page mill Partners is a Division of Duff & Phelps Securities, LLC. M&A advisory and capital raising services in the United Kingdom and Germany are provided by Duff & Phelps Securities Ltd., which is authorized and regulated by the Financial Conduct Authority ii 2014 Valuation Handbook Industry Cost of Capital (data through March 31, 2014)

3 To download a free copy of Developing the Cost of Equity Capital: Risk-Free Rate and ERP During Periods of Flight to Quality by Roger J. Grabowski, visit: To learn more about the latest theory and practice in cost of capital estimation, see Cost of Capital: Applications and Examples 5th edition, by Shannon P. Pratt and Roger J. Grabowski (John Wiley & Sons, Inc., 2014). Shannon Pratt and Roger Grabowski have produced a remarkably comprehensive review of the subject it is a work that valuation practitioners, CFOs, and others will find an invaluable reference. Professor Richard Brealey, London Business School (from the Foreword) Estimating the cost of capital is critical in determining the valuation of assets, in evaluating the capital structure of corporations, and in estimating the long run expected return of investments. Shannon Pratt and Roger Grabowski have the most thorough text on the subject, not only providing various estimation methods, but also numerous ways to use the cost of capital. Professor Roger G. Ibbotson, Yale School of Management, former chairman and founder of Ibbotson Associates, chairman, founder, and CIO of Zebra Capital. Additional copies of the 2014 Valuation Handbook Industry Cost of Capital and its June, September, and December quarterly updates may be obtained from our Distributors: Business Valuation Resources, LLC (BVR) 1 (503) ext. 2 ValuSource 1 (800) Valuation Handbook Industry Cost of Capital (data through March 31, 2014) iii

4 Analysis The 2014 Valuation Handbook Industry Cost of Capital provides eight (8) cost of equity capital estimates for each of the industries covered in the book, plus detailed statistics for sales, market capitalization, capital structure, various levered and unlevered beta estimates (e.g. ordinary-least squares (OLS) beta, sum beta, downside beta, etc.), valuation (trading) multiples, financial and profitability ratios, equity returns, aggregate forward-looking earnings-pershare (EPS) growth rates, and more. The 2014 Valuation Handbook Industry Cost of Capital provides new statistics that enable the user to gauge the impact of debt-like off-balance sheet items on the capital structure of the subject industry. These debt-equivalent liabilities (specifically, operating leases and unfunded pension obligations) are analyzed in Appendices A and B. The following industry divisions are analyzed in the 2014 Valuation Handbook Industry Cost of Capital. A total of 205 industries, plus four Size Groupings (Large-, Mid-, Low-, and Micro-Capitalization companies) are analyzed therein. The list of industry divisions is shown below for reference only; the analyses of the 205 industries included in the hardcover 2014 Valuation Handbook Industry Cost of Capital are not reproduced in this document. These analyses are, however, updated and included in each of the June, September, and December Quarterly Updates. Industry Data Exhibits Division A: Agriculture, Forestry, and Fishing Division B: Mining Division C: Construction Division D: Manufacturing Division E: Transportation, Communications, Electric, Gas, and Sanitary Services Division F: Wholesale Trade Division G: Retail Trade Division H: Finance, Insurance, and Real Estate Division I: Services Size Groupings: Large-, Mid-, Low-, and Micro-Capitalization Companies Appendices Appendix A: Relative Impact of Off-Balance-Sheet Debt-Equivalent Liabilities on the Capital Structure, as Measured by Total Capital* Appendix B: Leverage Ratios and Unlevered Betas Calculated Using (i) Book Debt, and (ii) Book Debt Plus Off- Balance-Sheet Debt* Appendix C: Industry List by SIC Code Appendix D: Industry List by Industry Name (alphabetical) Appendix E: Companies (Main Set) in Each Industry, by SIC Code Appendix F: SIC Codes in which Companies (Main Set) are Included Appendix G: Companies ( High-Financial-Risk Set) in Each Industry, by SIC Code Appendix H: SIC Codes in which Companies ( High-Financial-Risk Set) are Included * The primary purpose of this document is to provide a list of the companies (by SIC) used in the analyses presented in the hardcover 2014 Valuation Handbook - Industry Cost of Capital. The analyses presented in Appendices A and B in the hardcover book are not reproduced in this document. The analyses are, however, updated and included in each of the June, September, and December Quarterly Updates. iv 2014 Valuation Handbook Industry Cost of Capital (data through March 31, 2014)

6 Introduction In March 2014, Duff & Phelps published the 2014 Valuation Handbook Guide to Cost of Capital, which provides key year-end data previously available in (i) the Morningstar/Ibbotson SBBI Valuation Yearbook and (ii) the Duff & Phelps Risk Premium Report. 1 The 2014 Valuation Handbook Guide to Cost of Capital can be used to develop cost of equity capital estimates for an individual business, business ownership interest, security, or intangible asset. In September 2014, Duff & Phelps introduces the new 2014 Valuation Handbook Industry Cost of Capital (this book). The 2014 Valuation Handbook Industry Cost of Capital provides the same type of rigorous industry-level analysis previously published in the green-cover Morningstar/Ibbotson Cost of Capital Yearbook. New and noteworthy in this book is (i) the inclusion of additional methods to calculate industry-level cost of equity capital and other statistics, which enables a more robust benchmarking analysis when developing industry cost of capital estimates, and (ii) new analysis of the impact of off-balance-sheet debt (specifically, capitalized operating leases and unfunded pension liabilities) on capital structure (see Appendices A and B). The 2014 Valuation Handbook Industry Cost of Capital includes cost of capital estimates (i.e., equity capital, debt capital, and WACC) for over 200 U.S. industries and size groupings (i.e., Large-, Mid-, Low-, and Micro-capitalization companies), plus a host of detailed statistics that can be used for benchmarking purposes. The 2014 Valuation Handbook Industry Cost of Capital contains data which the valuation analyst will find useful in benchmarking, augmenting, and supporting his or her own custom analysis of the industry in which a subject business, business ownership interest, security, or intangible asset resides. Like the previous Morningstar/Ibbotson Cost of Capital Yearbook, the new 2014 Valuation Handbook Industry Cost of Capital is published with data through March 2014, and will include three intra-year Quarterly Updates (June, September, and December). 2 The data included herein is updated through March 31, And, like the previous Morningstar/Ibbotson Cost of Capital Yearbook, the new 2014 Valuation Handbook Industry Cost of Capital is published with industries identified by Standard Industrial Classification (SIC) code. 1 The 2014 Valuation Handbook Guide to Cost of Capital (Duff & Phelps, 2014) (and the accompanying online applications) are available from our distributors: (i) Business Valuation Resources, LLC (BVR), 1 (503) ext. 2, or (ii) ValuSource, 1 (800) , or (iii) AICPA, 1 (888) , 2 Quarterly Updates are optional, and are not sold separately Valuation Handbook Industry Cost of Capital (data through March 31, 2014)

7 Who Should Use the Valuation Handbook Industry Cost of Capital In addition to the traditional professional valuation analyst, the 2014 Valuation Handbook Industry Cost of Capital is designed to serve the needs of: Corporate finance officers when pricing or evaluating proposed mergers and acquisitions (M&A), raising private or public equity, estimating property taxes, and/or dealing with stakeholder disputes. Corporate officers when evaluating investments for capital budgeting decisions. Investment bankers when pricing initial (or follow-on) public offerings, proposed M&A transactions, and private equity financing. Private equity investors when pricing or evaluating proposed M&A transactions, designing and awarding management equity-based compensation, or making capital budgeting decisions. CPAs and valuators dealing with either valuations for financial and tax reporting purposes, or with dispute and bankruptcy valuations issues. Judges and attorneys dealing with valuation issues in M&A, shareholder and partner disputes, damage cases, solvency cases, bankruptcy reorganizations, property taxes, regulatory rate setting, transfer pricing, and financial reporting. Why did the Authors Write the Valuation Handbook Industry Cost of Capital Morningstar announced in September 2013 that it would no longer publish the Ibbotson SBBI Valuation Yearbook, the Cost of Capital Yearbook (industry-level data), and other related valuation publications and products. Last year s 2013 Cost of Capital Yearbook (with data through March 31, 2013) was Morningstar s last Cost of Capital Yearbook. Morningstar did not publish a 2014 version with data through March 31, The new 2014 Valuation Handbook Industry Cost of Capital includes key industry-level data that was previously available in the Morningstar/Ibbotson Cost of Capital Yearbook using the same rigorous industry aggregation methodology, plus (i) additional methods of cost of capital estimation, and (ii) new analysis of the effect of off-balance-sheet debt on capital structure Valuation Handbook Industry Cost of Capital (data through March 31, 2014) 2

9 Analysis of Capital Structure Including Off-Balance-Sheet Liabilities The 2014 Valuation Handbook Industry Cost of Capital provides new statistics that enable the user to gauge the impact of debt-like off-balance-sheet items on the capital structure of the subject industry. These debt-equivalent liabilities (specifically, capitalized operating leases and unfunded pension obligations) are not only taken into account by credit rating agencies when assigning a debt rating for a company, but should likely be considered when ascertaining the true financial (and equity) risk of the subject company as well. The capital structure (and unlevered betas) of each industry are calculated with and without these offbalance-sheet debt-equivalent items, so that the user can gauge how material these liabilities are for the subject industry (see Appendices A and B). For a detailed discussion, see Cost of Capital: Applications and Examples 5th edition, by Shannon P. Pratt and Roger J. Grabowski, Chapter 20, Other Components of a Business s Capital Structure. Data Sources Company-level Data The primary source of company-level data used in the calculation of the industry statistics presented herein is S&P s Research Insight database. 7 Corporate Bond Yield and Credit Ratings The primary source of the corporate bond yield data and credit ratings data used in the calculation of the industry statistics presented herein is S&P s RatingsDirect on the Global Credit Portal. Beta Calculation Inputs The primary source of the beta calculation inputs used in the calculation of the industry statistics presented herein is the Barclays U.S. Corporate total return indices. 8 Fama-French (F-F) 3-Factor Model Inputs The primary source of the Fama-French (F-F) 3-Factor Model Inputs used in the calculation of the industry statistics presented herein is data available from Dr. Kenneth French. 9 7 Copyright Standard & Poor's, a Division of The McGraw-Hill Companies, Inc. All rights reserved. 8 Barclays Global Family of Indices Used with permission. Source: Morningstar s EnCorr database. 9 Kenneth R. French is the co-author, together with Eugene Fama, of the seminal paper introducing the 3-factor model: "The Cross-Section of Expected Stock Returns," Journal of Finance, To learn more, visit: Valuation Handbook Industry Cost of Capital (data through March 31, 2014) 4

10 Growth Rates The primary source of growth rates data used in the calculation of the industry statistics presented herein is Thomson Reuters I/B/E/S (Institutional Broker s Estimate System) Consensus Estimates (retrieved from S&P s Capital IQ database). Company Tax Rates The primary source of company tax rates data used in the calculation of the industry statistics presented herein were provided by John Graham, Professor of Finance, Fuqua School of Business, Duke University. 10 Long-term Risk-Free Rate and Long-term Equity Risk Premium The primary source of the long-term risk-free rate and long-term equity risk premium used in the calculation of industry statistics presented herein is the 2014 Valuation Handbook Guide to Cost of Capital. 11 Size Premia and Risk Premia Over the Risk-free Rate The primary source of the size premia and risk premia over the risk-free rate used in the calculation of industry statistics presented herein is the 2014 Valuation Handbook Guide to Cost of Capital. 12, 13 For full details on the data sources used in the calculation of industry statistics presented herein see the 2014 Valuation Handbook Industry Cost of Capital. 10 Professor Graham is (i) the D. Richard Mead Jr. Family Professor of Finance at Duke University, (ii) a Research Associate at the National Bureau of Economic Research (NBER), (iii) Director: Duke/CFO magazine Global Business Outlook, and (iv) Faculty Co-Director, Duke Center for Financial Excellence. To learn more, visit: https://faculty.fuqua.duke.edu/~jgraham/ 11 For a detailed discussion of the of the equity risk premium and risk-free rate, see the 2014 Valuation Handbook Guide to Cost of Capital, Chapter 3, Basic Building Blocks of the Cost of Equity Capital Risk-free Rate and Equity Risk Premium. 12 In the 2014 Valuation Handbook Guide to Cost of Capital, the data previously published in (i) the Morningstar/Ibbotson SBBI Valuation Yearbook and (ii) the Duff & Phelps Risk Premium Report have been re-named the CRSP Deciles Size Study and the Risk Premium Report Study, respectively. Both of these key valuation data sets are now published in the 2014 Valuation Handbook Guide to Cost of Capital. 13 For a detailed discussion of the derivation of the size premia and risk premia over the risk-free rate used herein, see the 2014 Valuation Handbook Guide to Cost of Capital, Chapter 7, The CRSP Deciles Size Premia Studies and the Risk Premium Report Studies A Comparison Valuation Handbook Industry Cost of Capital (data through 3, 2014)

11 Appendices C and D* List of Industries Analyzed Appendix C: Industry List by SIC Code The U.S. industries analyzed in the 2014 Valuation Handbook Industry Cost of Capital are presented in Appendix C by SIC code. Appendix D: Industry List by Industry Name (alphabetical) The U.S. industries analyzed in the 2014 Valuation Handbook Industry Cost of Capital are presented in alphabetical order in Appendix D. * The primary purpose of this document is to provide a list of the companies (by SIC) used in the analyses presented in the hardcover 2014 Valuation Handbook - Industry Cost of Capital. The analyses presented in Appendices A and B in the hardcover book are not reproduced in this document. The analyses are, however, updated and included in each of the June, September, and December Quarterly Updates to the hardcover book.

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